Strategy: Crank your ROI

Investors who calculate a property’s cash flow before securing financing are often forced to make other plans. Dalia Barsoum shares three strategies for ensuring that projected cash flow actually winds up in your pocket

The success of REITs over the past ten years point to a level of stability that residential real estate may not be able to offer if that long-awaited recession hits next year

Investing in real estate is a fairly simple process. Buy a property with positive cash flow, complete some home improvements to bump up the value, manage it very well and then hold it for the longterm. Repeat this process a few times, and lo and behold, you’ve become financially secure within 20 years.

But if you’re like me, you’re not the kind of person to sit around and twiddle your thumbs while there are better returns to be had – you’re constantly looking for strategies that can quickly boost your rental cash flow and improve your bottom line. Here are 10 battle-tested strategies that I’ve used to take my own real estate portfolio to the next level. I hope they can help you do the same.

Complete smart renovations

Target minimalistic, modern and practical upgrades that will appeal to millennial renters. These include stainless steel appliances, solid-surface countertops, fibre internet hookups, vinyl flooring products, fresh paint for the walls (cool grey tones are timeless and very trendy right now) and smart home features like Nest to remotely control things like thermostats, security systems and door locks at a low cost.

Provide a dishwasher and bathtub.

Each of these nice-to-haves will command an additional $50 per month from renters and cost you around $500 each. This means they will start to generate positive cash flow in less than two years.

Be dog-friendly.

There are droves of responsible pet owners struggling to find a suitable home for themselves and their furry best friends. These tenants expect to pay a premium, tend to stay longer and will provide double the regular security deposit. Once you’ve made the switch away from carpeting, renting to a responsible dog owner is a relatively low risk endeavour.

Include an on-time payment discount in your lease agreements.

For example, if you plan to rent your property out at $2,000 a month, write up the lease at $2,200 but offer a $200 on-time payment discount. An on-time discount makes late payments far less likely and gives you more flexibility when it comes time to renew the lease. Eliminating an on-time discount does not count as a rental increase.

Charge a flat-rate utility fee.

This should cover your combined expenses and then some. Average out the costs for all household bills (water, gas, electric, internet) and then add a profit margin that’s acceptable to you. Your renters will appreciate the convenience and consistency, and you’ll benefit from knowing that your utility expenses are covered for the year.

Use a long term rent-to-own strategy.

This is the ace strategy for increasing your monthly payments and boosting ROI. Rent-to-own payments are significantly higher than regular rent payments since they’re based on the real cost of homeownership and include costs like taxes and insurance. Rent-to-own also removes repair and maintenance from your side of the ledger, which improves your bottom line by a couple hundred bucks each month. Tenant vacancy won’t be a concern, as the initial rent-to-own deposit is usually six months’ rent or more. The only downside to this strategy is that you have to be willing to let the property go at the end of the rent-to-own term.

Strategically time your lease resets.

The two most competitive months for renters are April/May and August/September, which means these are the best months to be advertising your property. This strategy alone will provide quality tenants willing to pay top dollar for your rental. The ebb and flow of supply and demand means that rental rates can swing by as much as 10% to 20% throughout the year. Make sure your rental agreements end during these peak rent seasons, and over the years, those percentages will start to stack up.

Rent your property as a fully furnished unit.

Furnished properties tend to attract executives moving into town, homeowners in the process of building a house and similar high-quality tenants. With the rental premium on furniture – which should last for at least 10 years – you’ll usually make back your investment within 12 months.

Consider getting a short term rental licence.

This will allow you to take advantage of Airbnb traffic during the summer months. For well-located properties, you can expect to take in your usual monthly rent on a weekly basis. Renting your property by the night comes with the added benefit of having it professionally cleaned every week – on the tenant’s dime.

Rent by the room.

It’s not uncommon for people to pay $800 or more a month to rent a bedroom with shared access to a kitchen and bathroom. A three-bedroom suite that would normally rent for $1,800 can suddenly generate $2,400 a month. The caveat is that you can expect a little more turnover and some additional … let’s call them ‘managerial moments.’

These are just some of the strategies we use at Vantage West to optimize returns for our investor clients and in our own personal portfolios. You don’t need to be a professional property manager to profit from these tips, but should you wish to have us take care of your rentals for you, or if you’d like more details on the strategies above, we’re always happy to help.

AJ Hazzi is a Kelowna based investor and broker/ owner of Vantage West Realty, a boutique agency specializing in serving investors with quality acquisitions and investor focused property management. Contact him at info@ajhazzi.com or 778-765- 0377, or visit vantagewestrealty.com.